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Condominium conversion
In real estate, a condominium conversion or condo conversion is the process of entitling an income property or other lands currently held under one title to convert from sole ownership of the entire property (which often already is a multi unit property) into individually sold units as condominiums. Such entitlement is generally derived from approvals granted by state/provincial and/or local municipal authorities (and often other relevant agencies, such as conservation authorities). Indeed, though, virtually every condominium project could be characterized as a conversion of property that is held generally under one title, to property that is severed into portions so that the title to most such portions (i.e., units) can be held separately. However, the term "conversion" is usually reserved for just those projects which involve changing the title (and sometimes also the use) of an existing structure, such as a multi-dwelling apartment building, row dwellings (townhomes) or a commercial multi-unit rental site. As that statement suggests, and subject to any specific restrictions imposed by legislative or other approval authority, any type of existing structure can be converted to condominium, including residential, commercial and industrial. For example, as noted in the Canadian Condominium Institute - Golden Horseshoe Chapter text, Essential Issues for Realtors in the Condominium Act, 1998 http://www.ghccci.org/page8.html (by Ontario condominium lawyers, Craig Robson, Michael Clifton and Ron Danks), even though the Ontario Condominium Act, 1998 formally recognizes only conversions of existent residential premises to condominium, "Condominium conversions can be made to former office buildings, warehouses or other commercial properties as well as existing rental residential premises." Analyzing the multi-family property (This section discusses conversions primarily from a marketing or realtor's perspective.) The market for residential condominium conversions typically arises when the price of single family homes increases beyond the reach of the first time buyer. There are multiple types of investors involved when there is a hot conversion market. For example, an experienced developer may purchase an apartment building, hire a consultant to put the entitlements in place, and then upgrade the building so that the sales team can sell them as individual condominiums. Alternatively, a mom and pop have owned a 20 unit apartment building for 20 years and want to sell it. Rather than selling it outright as an apartment building, they hire a consultant to process the entitlements and sell the building instead at a condo premium to a developer who finishes the job. In order to determine the sales potential of the converted units, a market analysis is needed. This part of the process involves conducting a study of the neighborhood and of any competing complexes: an inspection of the exterior of the buildings, the condition of the interiors of the units, the condition of the grounds and the amenity package in place. Planning the conversion (This section discusses conversions primarily from a marketing or realtor's perspective.) Using the study outlined above, a conversion plan is formulated, taking into consideration both the positive and negative aspects of the property. The plan includes budgeting for needed rehab activities and the addition of any amenities that may be lacking. Homeowners Association (HOA) A condo community is governed by a form of homeowners association which, in some jurisdictions, such as Ontario, Canada, is actually a condominium corporation that is managed by a board of directors. The association, of which all of the condo unit owners are members, sets out certain guidelines relative to the obligations of the unit owners as they relate to the ownership of their unit and to their participation within the condo community, subject to the restrictions, guidelines and procedures set out in the applicable statutory regime. The operation of the association or corporation is very important to the success of the condo conversion (after conversion, property maintenance and, ultimately, the enhancement of property values. Marketing and financing The marketing of the condos can be done either through a realtor or with in-house personnel. (As outlined above, a model unit should be used in the program.) Direct mail campaigns--mailing brochures into apartment complexes--are often very successful. Television spots on cable channels can be very productive as well. Another powerful marketing tool, one that should be taken into consideration going into the conversion, is an attractive financing package that can be made available to potential purchasers of the condos. Trends As of 2006, the trend of apartment complexes converting into condos is gaining momentum. The low interest rate affliction that has crippled apartment fundamentals for several quarters is driving the biggest condominium conversion boom in two decades. In markets across the country, condo developers are paying a premium to acquire and transform rental properties into condos. In 2007, most markets in the US experienced falls in mean condominium sales prices, and far fewer conversions are being performed. Some of the projects which have been completed are now selling at auction for discounted prices, or remain unsold. Controversy Condominium conversions of rent-stabilized apartments can have the market effect of reducing the supply of affordable rental housing, and thus increasing its equilibrium price. While condo buyers are typically renters, condo conversions benefit multifamily owners by shrinking the supply of apartments, so conversions won't necessarily lead to a jump in multifamily occupancy rates. There is also a big incentive for a multifamily owner to do a condo conversion when they consider selling. Multifamily buildings can command a much higher selling price if there is a condo conversion and the units are sold separately. Basically, the upward spiral in home prices has caused owners of residential investment real estate to adjust the per-unit value they place on their property. Yet, critics argue that condo conversions price low-income residents out of the market and drive them out of the community, widening the affordability gap. In addition condo units can be a good alternative investment for investors who cannot afford to invest in single family homes or multi-family unit. In some places, like Los Angeles, California, there are various incentives for condominium converters to set aside affordable units, such as to satisfy parking-to-unit ratio requirements or receive other compromises from the city and the public. This can also potentially benefit the low- to moderate-income housing market. External links *Condo Conversion Search Online *Condo Conversion Consultants *Largest Condo Conversion in US History *Condo Conversion Marketing Category:Condominiums